Expectation survey 2014

INDIAN AUTOMOTIVE
INDUSTRY
INDIAN AUTOMOTIVE INDUSTRY
MAZARS IS AN INTERNATIONAL, INTEGRATED AND INDEPENDENT ORGANISATION SPECIALISED IN AUDIT,
ADVISORY, ACCOUNTING, TAX AND LEGAL SERVICES. AS OF SEPTEMBER 1, 2013, THE GROUP OPERATES IN 72
COUNTRIES AND DRAWS ON THE EXPERTISE OF 13,800 PROFESSIONALS TO ASSIST MAJOR INTERNATIONAL
GROUPS, SMES, PRIVATE INVESTORS AND PUBLIC BODIES AT EACH STAGE OF THEIR DEVELOPMENT.
2
EXPECTATION SURVEY 2014 3
TABLE OF CONTENTS
About the survey 4
Introduction 5
Executive summary 6
Detailed review
1. Growth 8
2. Expansion 12
3. Protability 17
4. Challenges 19
5. Government policies 22
6. Consumer trends 26
About Mazars 28
INDIAN AUTOMOTIVE INDUSTRY 4
ABOUT THE SURVEY
A dedicated workforce from Mazars was identied to undertake
research on specic aspects of Indias automotive industry.
The task of this special workforce was to dive deeply into the
dynamics and key areas of concern of the automotive industry,
which are pertinent to the current environment.
Brainstorming sessions were held with various industry experts
to gain varied perspectives on the trends and challenges reigning
over the automotive market. Matters relating to growth, expansion
and protability were identied as fundamental in determining
the industrys growth.
Based on the above, each module of this survey was strategically
designed with questions and focus areas, concentrating mainly
on signicant aspects of the automotive industry in India.
We reached out to more than 300 companies in the automotive
sector in various verticals, such as suppliers, auto components,
auto dealers and manufacturers.
With 20 key focus areas encapsulated in this survey questionnaire,
Mazars attempts to provide thought-provoking perspectives
on various issues that have infested the automotive industry.
Responses from industry experts and professionals, including
business heads, management and other key stakeholders have
been analysed and collated to bring forward an exhaustive
account of the automotive industry in India.
The adjacent charts represent the respondent proles and the
size of their organisation.
Nearly, two-third of the respondents are from the auto
components vertical, approximately one-fourth are from the
vehicles auto manufacturers vertical, while 8% are from the
two-wheeler manufacturers vertical. Others include professionals
such as analysts and experts who know and understand the
automobile industry.
Approximately half of the respondents are from companies
which currently have an annual turnover of INR 200 crore to INR
1,000 crore, while 27% of the respondents are from companies
which currently have an annual turnover in excess of INR 2,000.

About survey
26%
10%
15%
Below 200 Crores
201 to 500 Crores
501 to 1,000 Crores
1,001 to 2,000 Crores
Above 2,000 Crores
22%
27%

About survey
26%
10%
15%
Below 200 Crores
201 to 500 Crores
501 to 1,000 Crores
1,001 to 2,000 Crores
Above 2,000 Crores
22%
27%

About survey
8%
64%
12%
Auto manufacturers:
Passenger vehicles
Commercial vehicles
Two-wheelers
Auto components
14%

About survey
8%
64%
12%
Auto manufacturers:
Passenger vehicles
Commercial vehicles
Two-wheelers
Auto components
14%

ARVIND WALIA
Partner and Automotive Sector Expert, Mazars India
INTRODUCTION
Welcome to our latest survey based report on
the Indian automotive industry.
The automotive industry has been and will
remain a vital element of the economy of
industrialised countries across the globe.
Today, this industry is not only viewed as an
important driver of growth, income,
employment and innovation, but also one
which has increasingly been facilitating
cross-border sharing of technologies and
best practices.
In India too, the role of the automotive sector
is substantial. This industry accounts for 7%
of the nations Gross Domestic Product
(GDP), contributes more than one-fth of the
total excise duty collection and provides
direct and indirect employment to over 13
million people. The automotive industry in
India currently has 2 dedicated industry
bodies - Society of Indian Automobile
Manufacturers (SIAM) and Automotive
Component Manufacturers Association
(ACMA).
SIAM is the apex industry body representing
46 leading vehicle and vehicular engine
manufacturers in India. It is an important
channel of communication for the automobile
industry with the Government of India (GoI),
as well as national and international
automotive organisations. ACMA is the nodal
agency for the Indian auto component
industry that is represented on a number of
panels, committees and councils of the GoI,
through which it helps in the formulation of
policies pertaining to the Indian automotive
industry.
After possibly the longest and most difcult
period of slump in Indias automobile market,
the Indian automotive industry has reasons to
pin strong hopes on the new government
which has assumed ofce in May of 2014.
There is now an underlying expectation of the
fast track growth of this industry by pushing
through reforms such as the Goods and
Services Tax (GST), policies that boost
infrastructure development and other
initiatives which are focused on bringing back
footfalls to automotive dealerships.
As a part of its ongoing focus on providing its
automotive industry clients with opportunities
and platforms to voice their views and
expectations, Mazars has timed this historic
political development to undertake a focused
survey. While structuring the survey questions
and analysing the responses, Mazars has
sought to gauge the current sentiment and
outlook of the companies across all the
verticals within Indias automotive industry.
Our endeavour has also been to provide
thought-provoking perspectives on aspects
which can position this vital industry back on
track, while also identifying aspects which
can potentially create road blocks.
We are deeply obligated to all the respondents
for their participation. We are also grateful to
the experts who have provided us with their
worthy opinions and perspectives and hope
that this publication will throw light on
aspects that will catch the attention of the
policy makers in the new government.
Have a good read!
EXPECTATION SURVEY 2014 5
INDIAN AUTOMOTIVE INDUSTRY 6
EXECUTIVE SUMMARY
T
he automotive industry is a thrust sector for
India. This industry is one of the key drivers
of the national economic growth and is one of the
largest auto markets globally. Demographically
and economically, Indias automotive industry is
well-positioned for growth, servicing both domestic
demands and export prospects.
88%
EXPECT THE AUTOMOTIVE INDUSTRY
TO REVERT TO A DOUBLE-DIGIT
GROWTH RATE IN THE MEDIUM
TERM.
W
ith the gradual liberalisation of the automobile
sector since 1991, the number of manufacturing
facilities in India has grown progressively. The favourable
response from the industry to new progressive policies
can be gauged from the large scale entry of automobile
companies in the Indian market. Today, India has 9
signicant manufacturers of commercial vehicles, 16
signicant manufacturers of two and three wheelers
and 5 signicant manufacturers of engines.
F
or most part of the last decade and until 2011,
the Indian automotive industry had enjoyed a
respectable growth at a compounded annual growth
rate (CAGR) of approximately 14%. The industry,
which currently contributes nearly 7% of Indias GDP
and employs over 13 million people, is the largest in
two-wheelers segment and the seventh largest in the
passenger cars segment globally.
T
he Indian economy is currently going through
a turbulent phase with its GDP growth slowing
down to a decade low in 2013-14, with domestic as
well as external aspects playing a signicant role in
this downfall. However, the slump has veiled many
outstanding industry advancements. Standards of
quality and productivity have been raised without a
corresponding increase in price. Cars are now safer,
more fuel efcient and more technically advanced
than ever. Automotive workplaces have evolved to be
the hubs of high skills, advanced technologies and
dynamic changes.
E
ven during the economic downturn, the two-wheeler
and three-wheeler segments upheld the trend in
some of the more signicant indicators of progress.
Though the weakness in the economic growth had
resulted in a slowdown in the automotive sector in
2012-13 and 2013-14, India is expected to regain
respectable growth trends from this year.
T
he survey conducted by Mazars was timed alongside
a signicant political change in the India. It not only
captures the aftermath of the recent slowdown, but
also encapsulates new hopes that have arisen with
the formation of the new government in May of 2014.
W
hile several automotive organisations are making
investment budgets to suit the current economic
scenario, a majority of the respondents expect a fuller
utilisation of their plants and resources in the near to
medium term.
82%
OF THE RESPONDENTS ARE GEARING
UP FOR A GROWTH BETWEEN 4%
AND 7% IN THE TWO-WHEELER
SEGMENT, WHILE A MAJORITY IN THE
VEHICLE SEGMENT EXPECT 2014-15
TO BE A YEAR OF CONSOLIDATION AT
A GROWTH OF UPTO 4%.
6
EXPECTATION SURVEY 2014 7
S
ome mergers and alliances are more likely to take
place domestically in this year itself. These are
driven by the need for access to better technology,
manufacturing facilities, service and distribution
networks. The components segment is expected to
benet from Indias cost-efectiveness, protability
and globally-recognised engineering capabilities.
83%
EXPECT THE TREND OF NEW MODEL
LAUNCHES TO CONTINUE AND 50%
EXPECT SUBSTANTIAL REVENUES (IN
EXCESS OF 20%) AS AN OUTCOME OF
NEW OFFERINGS.
T
he upbeat sentiment about the industry is echoed
in the business plans that the organisations have
made for the next 3 years. A clear growth pattern
has emerged wherein the industry is optimistic while
expecting consolidation and a turn-around trend in
2014-15, increasing to more than 7% growth year on
year (YoY) from 2015-16 onwards. An overwhelming
majority expects the industry to regain its past glory
with a double-digit growth within the next 5 to 7 years.
A
t the same time, the Indian automotive industry is
facing challenges associated with the key automotive
companies investing in innovations and novel technology
concepts. An unprecedented new landscape appears
to be emerging. Expectations from the new models
that are being launched are high with these oferings
facilitating a competitive edge for India in the larger
global platform.
T
he road to growth, however, is not expected to be a
smooth ride. Troubled by several challenges, it will
take a while before the growth in the Indian automotive
industry gains pace. The respondents have extended
concern over basic success drivers like infrastructure,
technology, government support and cost of raw
materials.
I
mprovement in the quality of roads will also lead to
an increase in the vehicle sales. Also, the industry
needs to work towards upgrading technologies to meet
global standards. The low-cost advantages related to
the Indian auto component industry are anticipated to
continue attracting new investors.
T
he implementation of some import trade restrictions
on China can be a major step to propel substantial
growth within the Indian automotive industry.
M
ajority of our respondents believe that the
Automotive Mission Plan (AMP) has signicant
potential to drive the industry towards progress.
However, the current stagnancy in the AMP is a cause
of great concern. The policies of the AMP need to be
implemented efectively for the industry to grow.
W
ith the growing Indian population and increasing
earnings, the growth prospects of the automotive
industry remain high. Availability of low cost nance
in the market is a major assisting force for buyers.
C
ustomer preference, while purchasing a new vehicle,
is bent towards fuel efcient automobiles. Value for
money and afordability play a vital role in the selection
of vehicles, given the cost consciousness prevalent in
the Indian consumer market.
T
he strategies that are likely to be adopted by the
automotive companies will be aimed at meeting the
major challenges faced today, particularly in the areas
of rising fuel prices, automobile recycling, increasing
environmental and safety concerns, cost-efectiveness
and rising market competition.
T
he slow pace of the industry growth in the yesteryears
is now changing gears. The ensuing years are
expected to witness consolidation, introspection,
integration and growth in Indias automotive sector.
63%
RESPONDENTS ADVOCATE THAT THE
IMPROVEMENT IN INFRASTRUCTURE
WILL DRIVE THE AUTOMOTIVE
INDUSTRY TO SUCCESS.
7
8
1. GROWTH
INDIAN AUTOMOTIVE INDUSTRY 88
Growth
EXPECTATION SURVEY 2014 99
Q.1.(a) What is the approximate industry growth that you
have factored in for your organisations annual planning
for the year 2014-15?
The slowdown of the economy starting from 2012-13 has severely impacted
the growth momentum of the industry. Overall, the industry grew by a shade
under 5% in 2012-13. This was on the backdrop of a negative growth in the
passenger cars and commercial vehicles segments and an unusually at
growth of 5% in the two-wheeler segment.
With a new government in the center, year 2014 has brought in a hope of
revival in Indias economic environment. The initial positive signals from the
new government for a business-friendly policy framework and fast tracking
of initiatives, particularly in the infrastructure projects, are a strong impetus
to a feel good factor, essential for economic growth. However, 2014 is
predominantly being looked at as a year of consolidation, where the direction
of the policies and initiatives of the new government would be more evident.
This view was supported by our survey where a majority of the respondents
have planned for a maximum of upto 4% growth for the year 2014-15 for all
four-wheelers. The mood in the two-wheeler segment is more upbeat with
82% planning for a YoY growth in the region of 4% to 7%.
Q.1.(b) What is your expectation in terms of growth for
the subsequent 2 years i.e. 2015-16 and 2016-17?
While the vulnerability and depressed sentiment resulted in the market
slowdown in 2012-13 and 2013-14, India is expected to strengthen the growth
trends from 2014-15 onwards. The sector will move towards revival, but will
take some time to match up with the incessant growth of the last decade.
Building on the consolidation in the year 2014-15, the economy in general and
the automotive sector in particular, is expected to change gears and gather
stream from the year 2015-16 onwards. The ever present twin phenomena
of low car penetration and rising incomes, when combined with increasing
afordability of cars, is expected to get the growth momentum on track.
There is a general optimism that the growth of the automotive industry in
all its segments would accelerate to 7% or more from 2015-16.

0% to 3%
36%
50%
Commercial vehicle
14%

41%
59%

4% to 7%
Above 7%
Passenger vehicle
Two-wheeler
0% to 4%
4% to 7%

0% to 4%
82%
6%
12%

4% to 7%
Above 7%
OVER 50% EXPECT
CONSOLIDATION IN 2014-15 WITH
A GROWTH OF UPTO 4% FOR
FOUR-WHEELERS
91% EXPECT A GROWTH OF OVER
4% IN THE COMMERCIAL VEHICLE
SEGMENT

0% to 4%
48%
9%
Commercial vehicle
43%

37%
13%

4% to 7%
Above 7%
Passenger vehicle
Two-wheeler
0% to 4%
4% to 7%

0% to 4%
56%
6%
38%

4% to 7%
Above 7%
50%
Above 7%
INDIAN AUTOMOTIVE INDUSTRY 10
Growth
Q.2. What are the prospects over the medium term horizon of the
Indian automotive industry to regain its lost growth momentum
of the last decade (where the industry grew at 15%)?
Industry experts and companies appear to have largely converged in terms
of their expectations of a CAGR exceeding 10% over the ensuing 5 to 7 years,
with ACMA and SIAM endorsing these estimates.
The growth drivers which fuelled the industry in the last decade are expected
to kick start the fast momentum over the ensuing 12 to 18 months. An improved
policy framework, better vehicle afordability and improved infrastructure
are expected to take the industry growth to double-digit levels, albeit over
the medium to long term (i.e. 5 to 7 years). However, as discussed in the
later part of this report, a caveat has to be added to the expected growth
trajectory. To regain the momentum, the growth enablers would require
the governments attention. Besides this, sensitive but much needed labour
reforms are essential to achieve a double-digit growth.
Nearly 88% of the respondents believe that the automotive industry can
revert to a double-digit growth rate, with about 50% strongly expressing
this sentiment.
Q.3. What are the most important drivers of growth in
the Indian automotive industry?
India is home to almost all the major global automobile brands, which together
contribute more than three-fourths of the total production and domestic
sales. The period of 2001-02 to 2011-12 was a remarkable one for the Indian
automobile industry which made steady progress on all important fronts,
i.e. production, domestic sales and exports. Yet, this growth story fell short
of the growth trajectory seen in China.
For India, the critical enablers as per the industry feedback are the overall
economic growth, government policies and interest rates. The popular
impression that the fuel costs also signicantly impact the industry growth
is not sufciently validated by the survey response, though the industry
experts as well as the respondents have, in a later part of the survey, stated
that fuel efciency is the most important aspect in the selection of a specic
model by the majority of the buyers.
Factors Most important Moderately important Least important
Economic growth 75% 25% 0%
Government policies 64% 33% 3%
Interest rates 45% 45% 10%
Fuel costs 37% 53% 10%
General infation 23% 43% 34%
W
e expect to witness a
more rapid
double-digit growth in the
two-wheeler segment with
the new policies and improved
buying sentiments of our end
customers.
SUNILKANTMUNJAL,JOINT
MANAGINGDIRECTOR,
HEROMOTOCORP
88% EXPECT THE INDUSTRY TO
RECORD A DOUBLE-DIGIT GROWTH
RATE OVER THE ENSUING
5 TO 7 YEARS

No
38%
12%
50%

Maybe
Yes
75% RATED ECONOMIC GROWTH
AS THE MOST IMPORTANT
DRIVER OF GROWTH
EXPECTATION SURVEY 2014 11
Growth

Decline
19%
9%
72%

Stay the same

Show a modest growth
Three-fourths of the respondents have identied economic growth, while
nearly two-thirds of the respondents have identied government policies
as the most important growth driver.
In the view of the high dependence on nancing, where 70% sales of passenger
cars and 90% commercial vehicles are nanced, the industrys growth is
also sensitive to the interest rates. Our survey has conrmed this aspect
with 45% respondents assigning this as a signicant factor for growth.
Q.4. What will be the impact on the future exports due to
the withdrawal of incentives by the European Union and
other global factors?
Automotive exports during 2012-13 remained static at 0.55 million units while
two-wheelers at approximately 2 million units grew by 5% over the previous
year. With Europe having decided to withdraw a concessional tarif regime
for India and some other developing nations with efect from January of
2014, the export of vehicles is likely to be adversely afected. The Commerce
Ministry in India is considering fresh incentives to help these sectors retain
their competitiveness.
Notwithstanding these factors, experts believe that exports from India would
grow at a moderately satisfactory rate. This view was also endorsed by 72%,
who felt that exports from India would have a modest growth.

Q.5. Do you see Africa emerging as a major destination
for automotive exports in the next fve years?
Africa is the third fastest growing economic region in the world. Its rate of
urbanisation is higher than India and lower than China. It is widely estimated
that from 1 million vehicles at present, the annual automotive sales would
grow to 6 million vehicles in the near future. With this, global automotive
companies are focusing on Africa notwithstanding the current challenges.
In line with the overall sentiment, 91% of the respondents agree that Africa
may well be a major destination for automotive exports in the next ve years.
Intensive eforts are required by the industry to understand the challenges
relating to delays on the ports, procedures for customs validation, non-tarif
barriers and documentation requirements (which are relatively excessive)
in some African countries. The Indian government too is taking strong
measures to promote exports to Africa and is conducting a joint study on
the free-trade agreement.
72% EXPECT EXPORTS TO SHOW
A MODEST GROWTH DESPITE
WITHDRAWAL OF INCENTIVES
I
n the midst of an
unpredictable economic
condition, exports will enhance
the GDP growth of India.
India is fast becoming a major
procurement center for global
automobile companies and is set
to mark its league into the top
ve vehicle producing nations
worldwide.
DAVIDCHAUDAT,PARTNER
ANDLEADER,AUTOMOTIVE,
MAZARS

No
44%
9%
47%

May be
Yes
91% ARE TARGETING AFRICA AS
A MARKET FOR EXPORTS
12
2. EXPANSION
INDIAN AUTOMOTIVE INDUSTRY 12
EXPECTATION SURVEY 2014 13
Expansion

Not likely
67%
17% 16%

Likely
Exceed this rate
Q.6. Will the introduction of new models follow the same
trend as it has in the year 2013-14?
New model oferings as a strategy is not a strategy to gain a competitive
edge any longer, rather a necessity for remaining competitive. This trend
is expected to continue for the next 5 to 7 years. In the last 2 years, around
90 vehicle models were introduced, which included those on totally new
platforms, as well as variants of existing platforms.
As the competition grows, launching new models in short intervals will be
of vital importance. However, this poses large challenges for automotive
manufacturers. The integration of all the segments of the manufacturing
process; and coordination between the design team, production line, suppliers
and distributors, are paramount to successful product launches. The time lag
between the design and rollout of vehicles has gone down considerably, i.e.
from 24 months in the 1980s to 12 months presently. Automotive companies
have internalised the process for continuously innovating on technology,
styling comfort and safety while developing new models.
This has signicantly shortened the life span of any given model, while
burdening high development costs across the entire supply chain.
Q.7. What is the expected growth from the new offerings
i.e. the percentage of total revenue coming from the new
models?
The launch of several new models in the market has helped Original Equipment
Manufacturers (OEMs) like Maruti, Hyundai, Honda, Toyota and Ford attain
relative success. Some of the remaining companies have struggled with
no comparable exciting oferings. The industry has looked positive on the
strength of the rising demand for Accent, Grand and Santa Fe, the new Honda
City and the Amaze compact sedan. Ford has reported a 51% YoY jump in its
sales in May 2014 due to the demand for Ecosport. The trend is clear and
accepted by the OEMs and industry experts. Almost all the automakers
are focusing on eforts to make gains, using tried-and-true methods, i.e. by
unleashing new models.
The overall commitment to the introduction of new models as a strategy to
remain competitive was evident as nearly 37% of the respondents expected
new products to contribute between 11% and 20% of the revenue, while
approximately 50% expected the share of new models to be in excess of 20%.
EXPECTATION SURVEY 2014 13
83% FEEL THAT THE NEW
MODELS WILL CONTINUE TO
BE LAUNCHED

0% to 10%
37%
13%
30%

11% to 20%
21% to 30%
Above 30%
20%
50% EXPECT OVER 20% OF
THEIR REVENUE TO COME
FROM NEW MODELS
INDIAN AUTOMOTIVE INDUSTRY 14
Expansion

No
20%
60%

Somewhat
Yes
20%
Q.8. Is the automotive industry throughout the supply
chain geared to absorb the additional cost burden arising
from introduction of new models?
OEMs are forced to shorten the product lifecycles in order to react to the
expectations of individual and fast-changing consumer demands with
innovative products. In the past, an average product lifecycle in the automotive
industry was 8 years. Today, the lifecycles are much shorter, or at least the
products design is often modied after 2 or 3 years in the market. With
development costs for a new model remaining on the same level or even
increasing, this concurrently means shortening of the amortisation time
for the OEM and the entire supply chain and potentially, lower prots (in
the absence of a corresponding increase in prices for a ow-through). This
aspect is not a deterrent for the strategy of new model introduction and
the industry is assessing the impact of the additional cost impact in their
pricing and economic model.
Q.9. Are the capacities in India and China, in relation to
the demand potential, adequate for the next 3 years?
The estimated utilisation of the global capacity in 2012-13 was 70% as against
the historical average of 80%. Most of the underutilisation was reported from
Europe and Brazil, Russia, India and China (BRIC) regions. Due to the brutal
restructuring of their automotive industry post 2008, USA was relatively
better placed in terms of capacity utilisation. The capacity utilisation in 2012
and 2013 were 64% in China, 83% in USA, and 71% in India.
Projections of vehicle sales suggest that the growth will mostly take place
in emerging markets. The growth rate until 2020 is projected at an average
3% per year for the Organisation for Economic Cooperation and Development
(OECD) countries and 9% per year for the BRIC countries.
A comparison of the projected production levels in 2020 (between 125 and
130 million cars worldwide) with the actual capacity in 2012-13 indicates
that the additional production capacity of around 35 to 40 million cars needs
to be built over the next 8 years. The countries with the largest projections
that need to expand capacity in the medium term are India and China. For
the next few years, existing capacities are expected to be able to meet the
expected demand, albeit after considering technological improvements.
Our respondents have stated that the current capacities in China and India
are adequate for at least next 3 years, 72% in case of China and 69% in
case of India.
Accordingly, most organisations have restricted their plans for investments
in capacities for the ensuing 2 years.
80% HAVE FACTORED IN THE
ADDITIONAL COST BURDEN OF
LAUNCHING NEW MODELS

Low
14%
72%

Adequate for
next 3 years
Need to create
more capacities
14%
CHINA
69% BELIEVE THAT INDIA HAS
ADEQUATE CAPACITIES FOR THE
NEXT 3 YEARS

Low
7%
69%

Adequate for
next 3 years
Need to create
more capacities
24%
INDIA
Expansion
EXPECTATION SURVEY 2014 15

40%
34%

13%
No
Increase up to 15%
of existing capacity
Increase up to 20%
of existing capacity
More than 20%
of existing capacity

13%
Q.10. Do you plan to increase your organisations capacity
over the next 3 years?
The automotive industry had invested in capacities earlier to cope with the
expected sales growth of around 8-10% per annum.
Last year, investments to the tune of INR 20,000 crore were made in the
Indian automotive industry. The slowdown in the industry over the last
2 years has resulted in several organisations having excess capacities.
Consequently, fresh investments in capacity building are unlikely in the near
to medium term. However, the investments in developing new products,
refreshes and research and development is an ongoing exercise, which is
expected to continue.
In tandem with the perception about the industry capacity, respondents were
conservative in relation to the expansion in a 3 year time frame. 40% rmly
believed that no expansion was required, while 34% felt a marginal expansion
of 15% may take place in the ensuing 3 years in their organisation.
Q.11. What would be your preferred areas of investment
over the next 3 years?
With the investment in capacity building not being a high priority area, the
Indian automotive industry has an opportunity to focus its investments on
innovation, productivity and quality. While the leading global auto suppliers
typically spend 5% to 10% of their revenues on Research and Development
(R&D) for innovation and quality, it is currently and cumulatively less than
1% in the case of Indian manufacturers.
The automotive industry has always had an impact on upstream and
downstream industries. For example, the steel, aluminium, plastics and
glass industries invest in R&D and innovation to come up with high-strength,
lightweight composites to improve the quality and ofer green solutions for
sustainable automobiles. Downstream, the nance and insurance industries
become more innovative to facilitate greater afordability in tier 2 cities and
rural areas. Consequently, investing in innovation, productivity and quality
would not only accelerate the growth of the industry but also create positive
impulses for other coupled industries. Our respondents strongly identied
preferred areas for investment in the next 3 years as productivity, quality
and innovation.
Most preferred area of
investment
Medium preferred
areas
Least preferred
areas
Productivity increase 84% 10% 6%
Quality initiatives 81% 10% 9%
Innovation 74% 20% 6%
Green technology 50% 40% 10%
Marketing and brand building 50% 39% 11%
Acquisitions 40% 44% 16%
Capacity increase 31% 24% 45%
Land and building 20% 31% 49%
74% ARE NOT LOOKING TO
INCREASE CAPACITY
SIGNIFICANTLY
A
ll of the car
manufacturers have
capacity problems - all of
them.
CARLOSGHOSN,
HEAD,NISSAN-RENAULT
84% RATED PRODUCTIVITY
INCREASE AS THE MOST
PREFERRED AREA FOR
INVESTMENT
INDIAN AUTOMOTIVE INDUSTRY 16
Expansion
Q.12. Do you think the reduction in the central excise
duty as announced in the February 2014 budget would
improve the consumer sentiment and possibly revive the
demand for vehicles and therefore, should be continued
after June 2014 as well?
To provide relief to the automobile industry, the GoI had reduced the excise
duty by 4% to 6% for the period up to June 30, 2014. After initially passing of
this discount to consumers, most manufacturers increased the prices soon
after to compensate for the rising input costs. Consequently, the expected
impact of the increased sales did not come about. In most cases, the vehicle
manufacturers had to absorb the burden of higher duty already paid on
unsold inventories. However, the industry welcomed the duty reduction and
strongly felt that it would help in stirring up the demand.
73% of the respondents feel that the demand will positively be afected up to
5%, due to the cut in the excise duty, thus strongly advocating the continuation
of this reduction and not limiting it to June 30, 2014.
Mazars has been advocating the need for the extension of the excise duty
cut, and is delighted that the new government has extended the validity of
concessional excise duty regime provided for the capital goods, automobiles
and consumer durables sectors by six months, i.e. till 31 December, 2014.
73% FEEL THAT CONTINUATION
OF THE EXCISE BUDGET
REDUCTION MADE IN THE
FEBRUARY 2014 BUDGET WILL
HAVE A POSITIVE IMPACT ON THE
DEMAND

10%
73%

17%
No
Increase by up to 5%
6% to 10%
3. PROFITABILITY
17 EXPECTATION SURVEY 2014 EXPECTATION SURVEY 2014 17
INDIAN AUTOMOTIVE INDUSTRY 18
Protability
Q.13. Do you agree that the overall proftability of the
industry (as a whole) in India is under pressure and
the maximum pressure gets passed on to the tier 1 and
tier 2 suppliers?
The overall protability of the automotive industry in India is under pressure
and the maximum pressure gets passed on to the tier 1 and tier 2 suppliers.
Small companies, with revenues under INR 100 crores, operate at a very low
protability and have a relatively lower return on capital employed (ROCE).
With signicantly lower margins, these companies are more prone to risks
associated with any fall in the demand.
Inevitably prot pressures in the industry are passed down throughout the
supply chain, with relatively disproportionate pressures being borne by
the tier 2 suppliers, thus curtailing their ability to invest in tandem with the
OEMs and tier 1 suppliers.
Consequently, this segment represents the soft underbelly of the industry,
leading to stress on the entire supply chain.
There was a strong agreement amongst the respondents that margin
pressures are borne disproportionately by the supply chain, particularly
by the tier 2 suppliers.
80% FEEL THAT
DISPROPORTIONATE PRESSURES
ARE BEING ABSORBED BY THE
TIER 2 SUPPLIERS



80%

20% Yes
Equally
throughout
the supply
chain
T
ier 1 and tier 2
suppliers are under
intense pressure to reduce
their overall cost structure.
Tis pressure is rooted in a
number of factors, including
the demands for price cuts from
the OEMs. Tese demands
are the result of the growing
price pressures that the OEMs
themselves are facing in
the competitive automotive
market.
SUNANDANKAPUR,
VICECHAIRMAN,
KRISHNAGROUP
4. CHALLENGES
19 EXPECTATION SURVEY 2014 19
INDIAN AUTOMOTIVE INDUSTRY 20
Challenges
Q.14. What are the major challenges faced by the Indian
automotive industry today?
The government should allocate increased funds towards infrastructure
development for the automotive sector. With the improved roads, ports and
power facilities, there will be a considerable growth in the sales of vehicles.
Major challenges
Moderate
challenges
Minor challenges
Availability of cost effective capital 70% 23% 7%
Access to world class technology & quality
practices
63% 34% 3%
Infrastructure defcit 63% 27% 10%
Talent crunch 52% 31% 17%
Trade policy 43% 30% 27%
63% respondents agreed that the Indian automotive industry urgently needs
advanced technologies to produce fuel efcient, environmental friendly,
lighter, safer, and cost-competitive engines and vehicles.
As compared to most of the other countries, the interest rates on nance of
vehicles are much higher in India. According to experts, the availability of
cost-efective capital will enable India to attain a competitive position globally.
Q.15. To what extent are the necessary reforms in labour
laws important to the industry?
Contract workers, who are paid relatively lesser benets, constitute
70% to 80% of the workforce in the industry. The underlying tension caused
by the clash between the workforces aspirations, automotive companies
cost considerations and outdated labour laws result in signicant pressure.
The insecurities of the casual labour have the potential of derailing Indias
automotive ambitions. Consequently, labour market reform is necessary to
retain the competitiveness of the automotive companies.
4 out of every 5 respondents have stressed that the need for labour reforms
is either critical or very important. 50% felt that such reforms are critical
for the automotive industrys growth.
63% BELIEVE THAT
INFRASTRUCTURE DEFICIT IS THE
KEY CHALLENGE FOR THE
INDUSTRY
T
he automotive sector in
India has the potential
(as it has done in the past)
of generating more jobs than
most of the other industries in
the organized manufacturing
sector. However, this sector has
possibly seen the most amount
of industrial conict. Te bane
of this lies in Indias archaic
labour laws and the consequent
high utilisation of contractual
labour.
MONISHCHATRATH,PARTNER
ANDLEADER,CONSULTINGAND
MARKETS,MAZARSINDIA



20%

30%
Somewhat important
Important
Critical

50%
80% WANT LABOUR LAW
REFORMS
Challenges
EXPECTATION SURVEY 2014 21

13%

70%
No impact
Signifcantly impacted
Severely impacted
17%
T
he need of the hour is exible labour reforms. An
atmosphere of fear in the minds of the workforce is
not healthy for the comprehensive growth of the industry.
Te stringency of labour laws is making companies outsource
labour. Tis has increased the overall cost for the automobile
companies in India.
ARVINDWALIA,PARTNER,MAZARSINDIA
Q.16. How is your organisation impacted by the prevailing
labour laws and situation of a high number of contractual
labour?
All the companies struggle with rigid labour laws, thus innovating their
HR practices to manage the consequent challenges. Most companies have
a presence of large number of contractual workforces where adherence
with the plethora of applicable laws poses practical difculties. Several
companies have the coexistence of a unionised workforce with difering
productivity standards and wage levels compared to the contractual workers.
Further, the permanency of a unionised worker compared to the temporary
status of a contractual worker creates an uneasy work environment. The
use of contractual employment may have been a convenient tool to curtail
the power of labour unions. However, this strategy has reached its limits.
Labour market reform is essential if automotive companies are to retain
their competitiveness; in some instances, to simply survive the dynamics
of the global business.
87% ARE ADVERSELY IMPACTED
BY THE CURRENT LABOUR LAWS
SITUATION
22 INDIAN AUTOMOTIVE INDUSTRY
5. GOVERNMENT
POLICIES
INDIAN AUTOMOTIVE INDUSTRY 22
Government policies
EXPECTATION SURVEY 2014 23


10%

66%
No impact
Moderate impact
Signifcant impact
24%
17. Do you think that the Indian auto component industry
is likely to be impacted by the imports from China?
The production costs in China are signicantly lower than India. The diference
ranges up to 20% and contrary to the common belief, the Chinese automotive
industry has greatly improved on the quality parameters. Chinas advantage is
its scale of operations, cheaper raw materials, lower capital costs, simplicity
of tarifs and cost of doing business.
Many OEMs like Tata, Bajaj Auto, M&M, TVS Motors, Ford Motors etc. are
directly sourcing components from China. According to a recent report by
Crisil, China more than tripled its share of the Indian automobile part imports
to 21% in 2012, from 6% in 2006.
From the overall industry perspective, the negative fallout of low cost
imports on the component suppliers is balanced out by the advantage
to OEMs and some tier 1 suppliers. However, in spite of the successes of
component industry in exporting to Europe and North America, India has
become the net importer of auto components. For many experts, this trend
is of serious concern.
However, notwithstanding the growing imports and threat perceived by
many afected suppliers, two-thirds of the respondents categorise the
impact of imports as moderate on the industry, while nearly one-fourth of
the respondents consider this to be signicant.
Q.18. Should the GoI institute some import trade restrictions
from China?
In 2000, the China-India trade was worth just US $2.9 billion, which grew
to US $80 billion in 2012. India is currently running a hefty trade decit
with China (over US $25 billion), which it is struggling to manage. In fact,
the current situation makes out a strong case of putting some restraining
mechanisms on one-way import of auto components.
62% feel that the GoI should institute import trade restrictions vis-a-vis
China, to address the cost disparity and virtual one-way trade for component
manufacturers.
66% FELT THAT THE IMPORTS
FROM CHINA WILL HAVE ONLY A
MODERATE IMPACT ON THE
COMPONENT INDUSTRY



24%

62%
No
Yes
Does not matter

14%
62% WANT THE GOVERNMENT TO
INSTITUTE IMPORT
RESTRICTIONS FROM CHINA
I
must be honest that there
is a great deal of concern
in our industry, given the
large and growing decit in
our trade with China. When
conditions are more propitious
and trade is more even, we will
nd it more feasible to discuss
Regional Trade Agreement or
Free Trade Agreement between
our countries.
DR.MANMOHANSINGH,

FORMERHONOURABLEPRIME
MINISTER
INDIAN AUTOMOTIVE INDUSTRY 24
Government policies
Q.19. What are the measures taken or likely to be taken by
the GoI for boosting the automotive industrys growth?
The medium to long-term growth prospects of the automotive industry are
bright. There is also a consensus on a desirable intervention by the GoI.
As per the new budget of June 2014, the excise rate cut, previously introduced
in the interim budget, will continue till 31 December, 2014. To bring forth larger
benets, the interest rates need to be brought down to make vehicle nancing
attractive, long-pending introduction of GST has to be introduced (this single reform
has the potential to revolutionise the entire manufacturing sector by eliminating
the cascading efect of taxation and can overnight make made in India products
cost-competitive) and the infrastructure decit needs to be addressed to ensure
uninterrupted and reliable power supply to major automotive clusters. An improved
infrastructure will ensure the smooth functioning of Indias automotive sector. This
apart, implementation of the plans for building highways need to be accelerated.
The long-term pending labour laws reforms are becoming an absolute necessity,
since reform and stability of policy on fuel pricing, have a considerable impact on
the industry.
The views of the industry have been echoed by the respondents in their responses
which have been tabulated for priority listing as below.
Order of importance 1 2 3 4
Improve infrastructure 55% 14% 21% 10%
Tax incentives 32% 32% 22% 14%
Low interest rates 28% 38% 21% 13%
Effective labour laws 26% 30% 22% 22%
Q.20. (a) Please rate the governments performance on the
parameters which the GoI had to fulfl as per the AMP.
The AMP 2006-2016 is the rst and largest initiatives taken by the GoI with the
vision for India to emerge as the destination of choice in Asia for the design
and manufacture of automobiles and automotive components. The output of
Indias automotive sector to be US $145 billion, contributing to more than 10%
of Indias GDP and providing employment to 25 million persons additionally by
2016. To achieve the objectives laid down in the AMP, intervention at 2 levels
for the industry and GoI was decided for execution.
The output from the automotive sector is currently contributing 7% of the GDP
and engaging 14 million people. All the aspects are short of the AMP goals
targeted for 2016. As per SIAM, the AMPs targets may be missed by 20% to
25% at the current growth rate levels.
55% WANT THE GOVERNMENT TO
INVEST IN INFRASTRUCTURE AS
A PRIORITY
T
here should be clarity
on diesel pricing and
continuation of subsidies,
lowering of interest rates and
the reigning in of ination,
continuation of excise duty cuts
as the OEMs have not really
been able to capitalise on the
cuts so far and imposition of
GST to ensure that there is a
fair pan-India tax structure.
JANESHWARSEN,
SR.VP(MARKETING),HONDA
CARSINDIA
Government policies
EXPECTATION SURVEY 2014 25
AMP envisaged government led initiatives need greater momentum in the
areas of development of infrastructure, tax incentives to the automotive
industry, exemption of export prots and development of capabilities by the
creation of centralised R&D laboratories.
The respondents feel that on most of the parameters, the governments
performance has been below satisfactory. Infrastructure creation and
promotion of the countrys capabilities are the two areas where the GoI has
performed signicantly low.
Below satisfactory Satisfactory Good
Facilitate infrastructure creation 73% 24% 3%
Promote the country's capabilities 76% 21% 3%
Create a favourable business
environment
69% 28% 3%
Attract investment 60% 30% 10%
Promote R&D 37% 53% 10%
Q.20. (b) As part of the AMP, the industry was to contribute
towards the following parameters. Please rate the industrys
performance.
Below satisfactory Satisfactory Good
Design and manufacture products of
world class quality standards
21% 69% 10%
Cost competitiveness 27% 50% 23%
Improving productivity of both labour
and capital
50% 40% 10%
Achieving scale and R&D capabilities 54% 39% 7%
Showcasing Indias products in
potential markets
31% 52% 17%
69% feel that the industry has performed satisfactorily in designing
and manufacturing products of world class quality standards and cost
competitiveness. However, it has performed less than satisfactory levels
in the areas of improving productivity of both labour and capital and on
achieving scale and R&D capabilities. The respondents feel that the industry
has performed satisfactorily in terms of showcasing Indian products in
potential markets.
AN OVERWHELMING MAJORITY
(60% TO 70%) IS DISSATISFIED
BY THE GOIS PERFORMANCE ON
THE IMPLEMENTATION OF MOST
PARTS OF THE AMP
MAJORITY FEEL THAT THE
INDUSTRYS PERFORMANCE
ON MOST PARTS OF THE AMP
(IN TERMS OF IMPLEMENTATION)
IS EITHER SATISFACTORY OR
GOOD
26 INDIAN AUTOMOTIVE INDUSTRY
6. CONSUMER TRENDS
INDIAN AUTOMOTIVE INDUSTRY 26
Consumer trends
EXPECTATION SURVEY 2014 27
Q.21. What are the important purchase criteria for an
Indian consumer in the decision making process for
buying a new vehicle?
Buying a vehicle is an important decision for an Indian customer based
on a wide range of factors such as afordability, need, social context and
lifestyle preferences.
The price-value point and brand are the overarching criteria for buyers.
The brand itself, however, represents a bundle of attributes for potential
customers who evaluate the choices in the market before concluding the
buying decision. It is, therefore, of no surprise that all the respondents have
stated that the spiralling high fuel prices have made fuel efciency the most
important criteria for evaluating the vehicle which needs to be purchased.
Our analysis has also shown that life styling preferences make styling as
the second most important aspect in the choice of a vehicle. The respondents
believe that the user base in India is not yet sensitive and well-informed about
environmental issues. Consequently, this aspect does not have a signicant
impact in the decision-making process for a vehicle.
Most important
Moderately
important
Least important
Fuel effciency 100% 0% 0%
Vehicle styling 81% 15% 4%
Extended warrantees 66% 15% 19%
Enhanced vehicle lifespan 60% 36% 4%
Safety innovations 50% 42% 8%
Use of alternative fuel technology 40% 20% 40%
Environmental friendliness 29% 24% 47%
FUEL EFFICIENCY IS CURRENTLY
THE MOST IMPORTANT CRITERIA
FOR BUYING VEHICLES IN INDIA
A
n Indian buyer has
various reasons to buy a
vehicle - prestige, the need of
the family, space, or upgrading
to a higher quality or segment.
Once the need for a vehicle is
established, the buyer considers
a brand that can provide
quality, utility, reliability,
styling and a reasonable re-sale
value.
RAVITALWAR,
CHAIRMAN,T&TMOTORS
T
he current consumer
market is bloating
with cost-conscious customers
who also pay a great attention
to the fuel eciency of the
vehicle. We are presently in
the changing face of luxury in
India.
ANILKULKARNI,PARTNER,
MAZARSINDIA
INDIAN AUTOMOTIVE INDUSTRY 28
ABOUT MAZARS
Mazars is an international, integrated and independent organisation specialising
in audit, consulting, accounting, tax and legal services. Directly present in
72 countries, Mazars unites the skills of 13,800 professionals. Through
correspondence and the ofces of representation agreements, Mazars also
serves its clients in 21 additional countries, with teams of professionals who
are at the forefront of technical and ethical standards.
In India, Mazars has an ambitious growth plan. We have a national presence
with ofces located in Bangalore, Gurgaon, Mumbai, New Delhi and Pune,
as well as arrangements to serve our clients in all major cities in India. We
serve an impressive portfolio of clients in various sectors like Automotive,
BFSI, Energy, Manufacturing, Real Estate, Retail, Technology and Telecom.
Mazars in India, with over 600 highly skilled professionals, focuses on
qualitative delivery for its clients in each engagement. Working in close-
cooperation as a globally integrated and exible team, our global partnership
enables our clients to receive and maintain continuing support and benet
from our connection with our ofces across the world.
Our approach consists of using international best practices whilst taking into
consideration the applicable national standards and operational realities,
as well as the requirements described by the client.
EXPECTATION SURVEY 2014 29
Notes
INDIAN AUTOMOTIVE INDUSTRY 30
Notes
This document has been printed on paper combined with 40% of virgin bres from responsibly managed forests and 60% of recycled bres.
DISCLAIMER:
The information contained in this publication is of a general nature and is not intended to address the circumstances
of any particular individual or entity. This document has been prepared with the help of various sources believed
to be reliable, but no representation or warranty is made to its accuracy, completeness or correctness. The facts
stated in the publication are based on data currently available and can change when this data gets updated. The
information contained in this publication is in no way meant to be a substitute for professional advice. Whilst
due care has been taken in the preparation of this publication and information contained herein, Mazars takes
no ownership of or endorses any ndings or views expressed herein or accepts any liability whatsoever, for
any direct or consequential loss howsoever arising from any use of this publication or its contents or otherwise
arising in connection herewith. June, 2014
This publication is a property of Mazars. All rights are reserved.
Detailed information available on
www.mazars.co.in
Mazars Communication
Ref. Auto-Study IN / Photosistock
Mazars is present in 5 continents.
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